Euro Exchange Rate Strengthens + Outlook for Week Ahead

The euro lost the limelight to the pound sterling and US dollar over the past week. What does the week ahead hold for the shared currency?

With eyes focused elsewhere the euro has been able to sneak some gains with the much vaunted ‘Super Thursday’ at the Bank of England and ‘NFP Friday’ in the US proving non-events.

Heading into the weekend the euro is on the front-foot.

The euro to pound exchange rate is nearly half a percent higher on a day-on-day comparison at 0.7075. The euro to dollar exchange rate is a third of a percent higher at 1.0958.

“The EUR has been difficult to trade recently given that European stories such as Greece or the ECB have gone away from the market’s focus,” acknowledge Morgan Stanley in a note to clients.

However analysts at the investment bank expect EURUSD to trade lower on more optimism on the Fed.

The US side of the story will most likely dominate trading in this pair in coming weeks.

Furthermore, it is noted that EURUSD continues to trade inversely with risk appetite so we continue to monitor the local equity markets.

Those looking to bet on EUR/USD at parity should also be aware that data from peripheral Eurozone economies is starting to turn around, in particular Spanish PMI beating expectations.

The Eurozone is starting to recover and we may have witnessed the best fundamental chance for a decline to parity having slipped by.

Indeed, the cheap euro is working -  “The weak Euro has had a large role to play in the surge in exports for both Germany & France. We had some more good data out of Spain today with Industrial Production for June increasing by 4.5 percent(Y-on-Y),” says Shailesh Mulki,  Corporate Risk Manager with Western Union.

If the Eurozone data starts picking up then we believe the bottom in the euro exchange rate complex will be shallower than many had been expecting.

Outlook for the Euro: The Week Ahead

TD Securities’ Ned Rumpletin sets us up for the upcoming week in euroland:

1. Euro Area Q2 GDP (Fri 14 Aug):

Markets are expecting continued momentum in Q2 GDP growth at 0.4% q/q (as in Q1). With June’s disappointing industrial production figures, we think there is a small downside risk to the consensus figure, and expect closer to 0.3% q/q. Weak global demand and the continued effects of deleveraging within the euro area are largely being offset by loose financial conditions, past depreciation in the euro, and a boost to real incomes from lower consumer energy prices. This should keep GDP growth near its underlying trend.

2. Norway Q2 GDP (Thu 20 Aug):

Norway won’t escape the sting of lower oil prices, and this should be evident in the Q2 GDP reading expected in two weeks. Weakness in the GDP figure will reinforce the Norges Bank’s recently-downgraded forecast for lower policy rates through to the end of this year. Following growth of 0.5% q/q in 15Q1, we expect a slowdown to a weak 0.4% q/q in Q2.

3. Euro Area June Industrial Production (Wed 12 Aug):

Negative readings on German, French, and Italian industrial production for June suggest a negative print for euro area IP in June.  After an increase of 0.5% m/m in May, we expect a sharp reversal of –0.7% m/m. Germany led the June decline in IP, but with surprising strength in the June German factory orders, we expect the weakness to be short-lived.